Labour laws in India aim to create a balance between protecting workers’ rights and ensuring smooth business operations. Workers, especially those employed through contractors, are often more vulnerable to exploitation in terms of low wages, unsafe working conditions, and lack of statutory benefits. To address this, the government introduced the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act).

Under this Act, any establishment or contractor employing 20 or more contract workers is required to obtain a Labour License. This license is not just a formality it serves as a regulatory tool to ensure that contract workers receive fair wages, safe working conditions, welfare facilities, and social security benefits. It also fixes accountability on the principal employer and the contractor for compliance. Failure to obtain or renew a Labour License may lead to penalties, cancellation of the contract, or even prosecution, thereby making it a crucial part of labour law compliance in India.

In this article, CA Manish Mishra talks about Labour License Registration in India: Applicability and Process.

Applicability of Labour License Registration

The requirement to obtain a Labour License comes from the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act). The law ensures that contract labourers, who are often engaged through contractors, are not denied fair wages, safe working conditions, and statutory benefits. The applicability can be understood in three broad categories:

Principal Employers

• Any establishment that employs 20 or more contract labourers on any single day in the preceding 12 months is covered by the Act.

• This requirement applies across sectors including factories, mines, plantations, construction projects, railways, ports, oilfields, and other notified industries.

• The Principal Employer (i.e., the company or establishment engaging the contractor) must first register its establishment with the Labour Department before any contractor can be engaged legally. This ensures accountability from the employer’s side.

Contractors

• Every contractor employing 20 or more contract workers for execution of work is required to obtain a Labour License.

• This is mandatory even if the contract is short-term, project-based, or seasonal in nature.

• Contractors working under a principal employer must also get licensed separately, which creates a dual layer of compliance ensuring both the employer and contractor remain responsible for labour welfare.

Exemptions

• The Act does not apply to establishments where contract labour is employed for work of an intermittent or casual nature, as specifically notified by the appropriate government. For example, temporary cleaning or maintenance jobs done occasionally may fall under this exemption.

• Establishments employing fewer than 20 contract workers are also exempt from compulsory registration. However, they may still voluntarily register for credibility and smooth operations.

Key Trigger for Applicability

The main threshold is 20 or more contract workers. Once this number is reached, registration becomes compulsory both for the principal employer and the contractor. This provision ensures that a large workforce engaged through outsourcing arrangements does not remain outside the ambit of statutory protections like minimum wages, health facilities, restrooms, canteens, and other welfare measures.

Legal Framework

The Labour License registration system in India is grounded in statutory provisions that regulate the employment of contract labour. Its foundation lies in central legislation but is also shaped by state-specific rules, since labour is a concurrent subject under the Constitution of India.

Contract Labour (Regulation and Abolition) Act, 1970 (CLRA Act)

This is the parent Act that mandates registration of principal employers and licensing of contractors. Its objectives are:

• To regulate the employment of contract labour in certain establishments.

• To provide welfare measures and statutory benefits (wages, health, safety, and facilities) to contract workers.

• To abolish contract labour in work that is perennial in nature and central to the functioning of an establishment.

Contract Labour (Regulation and Abolition) Central Rules, 1971

These rules were framed by the Central Government to operationalize the CLRA Act in industries under central jurisdiction (like railways, ports, banks, central PSUs, and major construction projects). The Central Rules lay down:

• The forms and procedures for registration and licensing.

• Registers and records to be maintained by employers and contractors.

• Welfare measures such as canteens, restrooms, drinking water, and first-aid facilities.

Corresponding State Rules

Since labour is a concurrent subject, states are empowered to frame their own rules under the Act. These State Rules prescribe procedures, fees, and welfare standards for establishments under state jurisdiction (like shops, state factories, local construction sites). As a result, the process and fee structure may vary slightly from state to state.

Licensing Authority

• The Licensing Authority under the Act is generally the Labour Commissioner or an authorised officer.

• For establishments under central control, the Central Labour Commissioner acts as the authority.

• For establishments under state control, the respective State Labour Commissioner or Labour Department officer is the authority.

Process of Labour License Registration

The process of obtaining a Labour License is generally online in most states, though the exact procedure may differ slightly depending on whether the establishment falls under Central or State jurisdiction. The purpose of the process is to ensure that both the Principal Employer and the Contractor are accountable for the welfare of contract workers.

Registration of Principal Employer

• The Principal Employer (company, factory, mine, construction site, or other establishment) must first apply for registration of the establishment by submitting Form I under the CLRA Act.

• Along with the application, supporting documents such as PAN, incorporation certificate, nature of business, and employee details must be submitted.

• Once verified, the Labour Department issues a Certificate of Registration, which authorises the principal employer to engage contract labour.

• Without this registration, no contractor can apply for a labour license.

Application by Contractor for Labour License

• After the establishment is registered, the Contractor must apply for a Labour License in Form IV.

• The application must include:

  • Certificate of Registration of the principal employer.

  • Copy of the agreement/contract between principal employer and contractor.

  • Details of contract labour (number of workers, duration of work, type of work).

  • Payment of prescribed fees and security deposit (varies by state, usually calculated per worker).

• This ensures that the contractor is legally permitted to supply or employ contract workers for the registered establishment.

Verification by Licensing Officer

• The application is scrutinised by the Licensing Officer (generally the Labour Commissioner or authorised officer).

• The officer verifies whether:

  • The establishment is properly registered.

  • The contractor has provided accurate details of workers and work nature.

  • The required fees and security deposit have been paid.

• The officer may also seek clarifications or additional documents before approval.

Grant of Labour License

• On being satisfied, the Licensing Officer issues a Labour License in Form VI.

• The license is valid for the duration of the contract specified in the application.

• It clearly mentions:

  • The maximum number of workers permitted.

  • The type and scope of work for which labour is engaged.

  • The statutory obligations of the contractor, such as payment of minimum wages, provision of health and safety measures, and maintenance of registers.

• The license must be renewed if the contract period extends.

Documents Required for Labour License Registration

To ensure transparency and accountability, both the Principal Employer and the Contractor must furnish specific documents when applying for a Labour License under the Contract Labour (Regulation and Abolition) Act, 1970. These documents help the Labour Department verify the authenticity of the parties, the scale of employment, and compliance with statutory obligations.

Registration Certificate of the Establishment (Principal Employer)

• This certificate confirms that the establishment has been registered with the Labour Department under the CLRA Act.

• It is issued to the Principal Employer and is a prerequisite before the contractor can apply for a labour license.

Identity and Address Proof of the Contractor

• Documents such as Aadhaar, Passport, Voter ID, or Driving License of the contractor or authorised signatory are required.

• This ensures that the contractor is a genuine person/organisation authorised to engage labour.

Agreement/Contract Between Principal Employer and Contractor

• A copy of the service agreement or work order entered into between the principal employer and the contractor must be submitted.

• It specifies the scope of work, contract duration, and obligations of both parties.

Details of Contract Labour to be Employed

• The application must include the number of workers, their nature of work, and period of engagement.

• This helps the licensing authority determine the appropriate license terms (e.g., maximum workers permitted).

PAN, GST, and Other Statutory Registrations of the Contractor

• PAN (for income tax), GST registration (if applicable), and other statutory licenses ensure that the contractor is tax-compliant and legally established.

• These documents establish the contractor’s legitimacy as a business entity.

Proof of Payment of Prescribed Fee and Security Deposit

• Labour license applications require payment of license fees and a refundable security deposit, often calculated based on the number of workers.

• Challan copies or online payment receipts must be submitted.

Passport-Size Photographs of the Contractor/Authorised Person

• Recent colour photographs of the contractor or authorised representative are mandatory for official records and verification.

Compliance Obligations After Grant of Licence

Once a Labour License is issued under the Contract Labour (Regulation and Abolition) Act, 1970, both the Principal Employer and the Contractor are legally bound to follow certain compliance requirements. These obligations ensure that contract workers receive fair treatment and statutory benefits, and that the engagement of contract labour remains transparent and regulated.

Payment of Wages

• Contractors must pay wages to contract workers in accordance with the Minimum Wages Act, 1948 or the wage rates fixed by the government/contract agreement (whichever is higher).

• Wages must be paid timely (before the 7th or 10th of the following month, depending on workforce size).

• The Principal Employer is held responsible if the contractor fails to make payment.

Provision of Health, Safety, and Welfare Facilities

• Contractors and employers must provide basic amenities to workers such as clean drinking water, restrooms, first-aid boxes, and in certain cases, canteens and creches.

• Safety measures at hazardous or construction sites must comply with prescribed standards under labour laws and state rules.

Maintenance of Registers and Records

• Employers and contractors must maintain statutory records including:

  • Muster Roll (attendance register).

  • Wage Register with details of salary, deductions, and net payments.

  • Employment Register with worker details.

• These records must be produced during inspections by the Labour Department.

Submission of Periodic Returns

• Contractors and establishments are required to file half-yearly and annual returns with the Licensing Authority.

• Returns typically include details of the number of workers employed, wages paid, facilities provided, and compliance with welfare provisions.

Renewal of Licence

• The Labour License is valid for the period specified (generally linked to the contract duration).

• If the contract continues beyond this period, the license must be renewed before expiry by paying the prescribed fees and submitting updated details.

Consequences of Non-Compliance

Non-compliance with labour license obligations can lead to suspension or cancellation of the license, along with penalties and fines under the CLRA Act and State Rules. In cases of repeated or serious violations, the law also prescribes imprisonment for the principal employer or contractor, ensuring strict enforcement of compliance.

Conclusion

Labour License Registration is a crucial compliance requirement under Indian labour law, serving as both a protective mechanism for workers and a legal duty for employers. It ensures that contract labourers are not deprived of fair wages, safe working conditions, and welfare measures, even when employed through contractors. By mandating licensing, the law promotes transparency and accountability, making both principal employers and contractors equally responsible for the treatment of workers. Timely registration and renewal also safeguard establishments from legal disputes, penalties, and cancellation of projects, while enhancing their reputation as law-abiding and responsible organisations.

With the introduction of the Code on Occupational Safety, Health and Working Conditions, 2020, labour laws are being consolidated to create a more unified compliance system. This makes it essential for businesses to adopt robust compliance frameworks and stay updated with reforms. Ultimately, labour license registration is not just a statutory formality but a commitment to ethical labour practices and smooth business operations.

Frequently Asked Questions (FAQs)

Q1. What is a Labour License and why is it required?

Ans. A Labour License is an authorization under the Contract Labour (Regulation and Abolition) Act, 1970, required by contractors and establishments employing 20 or more contract workers. It ensures regulation of working conditions, fair wages, and welfare measures for labourers.

Q2. Who needs to obtain a Labour License in India?

Ans. Both principal employers engaging 20 or more contract labourers and contractors employing 20 or more workers must register. Smaller establishments are generally exempt but may opt for voluntary compliance.

Q3. What is the process of Labour License Registration?

Ans. The process includes:

• Principal employer registering the establishment (Form I).

• Contractor applying for the license (Form IV) with documents, fees, and security deposit.

• Verification by the Labour Commissioner.

• Grant of license in Form VI specifying worker limits and obligations.

Q4. What documents are required for Labour License Registration?

Ans. Key documents include the establishment’s registration certificate, contractor’s ID and address proof, contract agreement, PAN/GST details, employee strength, payment challans, and photographs of the authorised person.

Q5. What are the penalties for non-compliance with Labour License rules?

Ans. Non-compliance may lead to suspension or cancellation of the license, monetary penalties, and in serious cases, imprisonment of the employer or contractor under the CLRA Act.

Q6. Is renewal of Labour License mandatory?

Ans. Yes. Labour Licenses are granted for a specific contract duration and must be renewed before expiry if the contract or engagement of workers continues.

Q7. How do state and central rules affect the registration process?

Ans. While the CLRA Act is central legislation, each state has its own rules regarding procedures, fees, and formats. Establishments under central jurisdiction (e.g., railways, ports, banks) follow the Central Rules, while others follow their respective State Rules.